In June this year, the National Commodity and Derivatives Exchange (NCDEX) had sought the market regulator’s nod to start options contracts in guar seed.

The Securities and Exchange Board of India is expected to approve options trading in guar seed, this week, sources told Moneycontrol. That would make it the second commodity, after gold, in which options contracts can be traded. Trading in guar seed options is expected to start in the last week of October.

In June this year, the National Commodity and Derivatives Exchange (NCDEX) had sought the market regulator’s nod to start options contracts in guar seed.

“Commodity brokers can start trading immediately but traders dealing in physical buying and selling could take time to participate in guar seed options because options trading needs entirely different strategies compared to physical trade or futures,” said a Jitender Jindal, a Haryana-based trader who deals in physical trade of the commodity.

NCDEX wanted to start options trading in some other commodities as well such as castor seed and soybean. But keeping in mind the high volatility in these commodities, it sought approval only for guar seed options.

Guar seed sees trades worth Rs 400-600 crore daily. The domestic market for the physical form is about Rs 300-500 crore, but the export market for guar gum is much larger at Rs 3,000-4,000 crore.

Prices of guar seed and guar gum rose at an extraordinary pace between October 2011 and March 2012. The guar seed prices had touched a high of Rs 32,000 per quintal by March 2012. Despite several measures such as high margins, lower position limits, suspension of traders, etc. taken by the regulator, the prices kept rising.

“Guar seed is a niche market; mostly industry-related people trade in them,” said Kishore Narne, Head of Research, Motilal Oswal.

“It is purely an order-based market so traders can easily hedge their positions with lower losses. Also, the lot size is expected to be smaller, which could leave room for retail participation too,” he said.

A source close to the development told Moneycontrol: “SEBI also feels guar seed has good participation since it is among the top five commodities in volume terms.”

India accounts for 80-85 percent of the total global production of the commodity and sets the price for guar products.

SEBI may also allow more commodities for options trading after reviewing the performance of gold and guar seed.